Debt management is a personal skill, developed through personal responsibility. It requires a mild knowledge of finance and a strong knowledge of planning. Debt can be useful or overwhelming, and debt management will determine that outcome.
The first step in debt management is to pay the bills. No matter what, bills should always be paid at least in their minimum balances. If any debt has accrued, the severity of the debt will be increased if bills are not paid because interest rates are likely to be raised in response to a poor credit rating. A credit rating is kept in pristine condition when bills are always paid on time and in adequate amounts.
If a person is in debt, he/she should have a plan for getting out. This includes proper budgeting for necessities, wants and savings. A truly helpful budget is one that adequately matches a person’s needs while sacrificing immediate in return for future goals. These goals include, but are not limited to, debt reduction and elimination as well as increases in savings.
The budget formula is simple: Income = Necessities (bill payments, groceries, etc.) + Wants (entertainment, jet ski, etc.) + Savings (retirement account, savings account, etc.). Debt management occurs when more money is diverted from savings and wants to necessities (e.g. paying bills). Personal discipline is necessary to manage debt reduction and balance this with spending on unnecessary wants.
However, debt reduction is not always easy. Fortunately, programs such as debt consolidation exist which allow people to make personal discipline easier. Debt consolidation programs often negotiate with credit companies for lower interest rates or payments, and they pull all debts into one, easily managed debt. Often people get lost in the shuffle of bills and eventually end up missing a payment due to poor organization. Debt consolidation not only assists debtors with the credit side of the equation, but also the personal discipline issue.
Debt management is a matter of discipline. In order to become debt free it is useful to learn debt management skills and the options available to you.